How to Buy-Sell Stores

Although it is nothing like the frenzy of a few years ago, dealerships are being bought and sold at a brisk rate. Publicly owned dealership chains are looking to round out their platform or regional networks. But we aren't seeing many large transactions. The activity lately is more private-to-private transactions, where independent dealer groups are purchasing a store or two. Every dealer needs an

Although it is nothing like the frenzy of a few years ago, dealerships are being bought and sold at a brisk rate.

Publicly owned dealership chains are looking to round out their platform or regional networks. But we aren't seeing many large transactions. The activity lately is more private-to-private transactions, where independent dealer groups are purchasing a store or two.

Every dealer needs an exit strategy. Pass on to the kids or cash in with a sale? Every dealer at some point faces such tough decisions. If the choice is to sell, how do you do it?

Any would-be purchaser will do a thorough review of the accounting records. Having “clean books” and properly prepared documents that have been reviewed and audited by your CPA go a long way to making the purchaser comfortable with the transaction.

Be sure your dealership facility makes a good first impression, too. A fresh coat of paint can make a big difference. Get the clutter out. Clean up the service bays.

Let's look at the major components of a buy-sell transaction.

For tax purposes the seller would prefer a stock deal and the purchaser an asset deal.

There are far more asset deals than stock deals in dealership transactions. The acquirer is just not willing to take on the risk of a stock transaction. Sellers should prepare to negotiate an asset deal, then find creative ways to make the deal most advantageous from a tax prospective.

Inventory valuation is of most importance. Generally, new vehicles are priced at what the purchaser would pay the manufacturer, factoring in all credits, incentives, and allowances. Prior-year models generally are discounted.

Used vehicles are handled in many ways. The most common approach is unit-by-unit negotiation, with the seller keeping units for which no deal is made, and disposing of them at an auction.

Parts are generally priced at current factory prices for useable and returnable parts.

Fixed assets are always an interesting negotiation. Sellers have a more valued opinion than the purchaser. As a seller, prepare yourself. Get your fixed assets listing up to date. A good physical inventory with all items tagged and accounted for can provide assurance to the buyer.

Consider employing a fixed-asset valuation expert and getting a fair market valuation of the equipment much as you would for the real estate.

Real estate has many options. In many deals, the existing dealer maintains the real estate and leases it long-term to the new dealer, with an option to buy in the future. It provides a good retirement stream for the seller.

The other deals we see include the sale of the real estate, where the property is appraised and the fair market value established.

Usually there will be equipment leases for the purchaser to assume. This includes service equipment, copiers and computer systems. Full disclosure of all leases is vital to a good transaction.

What is a dealership really worth? Ultimately it will be what a willing buyer and willing seller negotiate.

The franchise matters most, with the location a strong second. Most deals are priced at some multiple of earnings. That multiple will vary, based on everything mentioned here.

The issue is not always just the multiple. It is what is being multiplied. In most deals, what comprises the base triggers the most discussion between the parties.

Related Resources

Editor's PIcks

The classic image of a V-8 is big and thirsty. Engineers set out to dispel that notion by making the small-block Gen V engines extremely efficient. Along the way, some dynamometers also got toasted....More

The plan includes redesigned versions of the S80, V70, XC60, S60 and V60, as well as new V40 and XC40 for the U.S. By the time Volvo’s product offensive is complete four years from now, no vehicle in the lineup will be more than four years old....More

WardsAuto Blogs

Singling out shareholders for a big payday is not being fair or responsible. The “old GM” spent billions buying back shares and kept doing so almost until it went bankrupt. Look how well that worked....More

A key issue in the aluminum-vs.-steel standoff is strength. Each side is playing the military and, by extension, the patriotism card. The message is that if it’s strong enough to protect soldiers in combat, then it’s strong enough, and safe enough, for you and everybody in your truck....More

During outgoing Honda President Ito's reign, the automaker made some major missteps, from the underwhelming '12 Civic, to the '10 Insight. He also failed to boost the volume and prestige of the Acura brand....More

Hot Topic

The announcement follows a 6-month government review that considered the best and safest ways to test automated vehicles that allow an individual to take control of the car if necessary. It also looked further ahead to the legal implications....More

Today’s auto-industry executives must connect Silicon Valley and Detroit, as well as address entirely new dimensions of safety concerns, such as how to protect their customers’ privacy and data....More

The supplier envisions connected vehicles carrying on never-ending digital conversations with IBM’s computer servers in Dallas about more than just the weather. Forgive my inability to process the vast implications....More

Fully automated driving can be expected in the decade after 2020. But Bosch already offers driver-assistance functions which represent important first steps, Bosch Americas chief Werner Struth says....More